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Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

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Canada’s Oil Sands Production Poised To Grow Despite Pandemic

The coronavirus crisis and the collapse in oil prices will not be the death knell for Canada’s oil sands, as production will still grow through 2030 to reach 3.8 million bpd, just 100,000 bpd lower than pre-crisis output projections, IHS Markit said in its latest analysis on Tuesday.  

Even before the COVID-19 shock to the oil markets, oil demand, and economies, investments in Canada’s oil sands were expected to struggle from price insecurity because of the chronic insufficiency of pipelines that are necessary to carry Canadian heavy oil to market. The period of price insecurity was expected to last until the early 2020s.  

“The impact of COVID19 has changed the driver of the lower investment period, not necessarily the direction of long-term expectations,” said Kevin Birn, Vice President for the North American Crude Oil Markets team, and Celina Hwang, Senior Research Analyst for the North American Crude Oils Markets team at IHS Markit.

This year will mark the single largest production drop in the history of the Canadian oil sands, according to the analysts, but that will not necessarily weigh on the longer-term prospects of the oil sands.

Canadian producers curtailed a lot of output earlier this year because of the price and demand collapse—IHS Markit expects the peak curtailment to have shut in more than 700,000 bpd of oil sands production in the second quarter. Related: China Signs Series Of Deals To Develop Supergiant Oilfield In Iran

The dramatic curtailments, however, are likely to be only temporary, and producers are set to restore more production later this year and in 2021. Canada’s oil sands output will rise next year, thanks to curtailed volumes coming back and ramp-up of never-fully-utilized existing capacity, according to IHS Markit. If Alberta eases the mandatory cuts, Canadian oil sands output could increase by 300,000 bpd in 2022 compared to the pre-crisis levels in 2019. 

Longer term, growth will continue, but it will slow down as the crisis will likely defer new investments, IHS Markit said.

Yet, the consultancy warned about three key uncertainties going forward—the longer-term impact of COVID-19 on oil demand and markets, the perennial pipeline problem, and the oil sands industry’s ‘license to operate’ in the energy transition. 

By Charles Kennedy for Oilprice.com

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